Soviet Union strikes back: Ukraine crisis and resurgent Russia

It wasn’t supposed to be like this, back when that new international order was first proclaimed. Back when George HW Bush had proclaimed this brave new world, when Boris Yeltsin had climbed up on a tank, when the Soviet Union had disintegrated, Eastern Europe was finally freed from its occupation, the Berlin Wall had fallen and Leonard Bernstein had conducted Beethoven’s Ninth Symphony from that suddenly united city – the future seemed clear. When the dust had finally cleared, the former Soviet Union had spun off fourteen new independent republics besides the Russian Federation, and things were about to settle down to that calmer, gentler post-communist world.

Not exactly.

What it really seems to have done is generate a whole sluice of unresolved issues, with stranded ethnic Russian populations across the territory of the former Soviet Union, but outside Russia itself (see chart). And with fears in many such successor republics that the move on Crimea is simply the first of many other efforts to press such countries as Estonia, Latvia or Kazakhstan with their ethnic Russian populations of around a quarter of their total populations. And that, of course, doesn’t count the internationally unrecognised Trans-Dniestr Republic on a narrow strip of territory along the Moldova/Ukraine border. Estonia and Latvia are new NATO members and that has other implications, should such fears about Russian pressures materialise.

Concurrently, there are fears that the apparent success of the Crimean gambit will be fuel for Russian President Vladimir Putin’s revanchist dreams turned policies – or possibilities. But these may also be coming at an increasing economic cost to Russia and Russians – and more.

Following Russia’s annexation of the Crimean Peninsula after that quickie referendum that remains unrecognised by any other nation or international body, there has been unrest in the eastern part of the remainder of Ukraine, a region where the population is also significantly ethnic Russian and where many of those have been looking East rather than West towards Ukraine’s capital of Kyiv. With all of this in mind, determining Vladimir Putin’s intentions is rapidly becoming a kind of geo-political strategist’s cottage industry.

For some, the applicable model for this moment is the first stages of Europe’s slide into World War I in 1914, following the assassination of Austro-Hungarian heir to the throne, Franz-Ferdinand. For others, the relevant model is the appeasement that fed a revanchist Germany in the late 1930s. For others it is a Russian effort to carry out a revival of its dimming fortunes – after two decades of sloth and decay. To still others, Russia’s efforts are actually driven largely by the internal dynamic of a Russian ruler eager to embrace a mystic historical notion of Russia’s central role as a global defender of ancient verities and spiritual truths. For yet others, this annexation (and likely future ones) are actually an increasingly desperate effort to wriggle out of the economic pressures closing in on Russia from western nations. Or maybe it’s all of the above.

Most recently, in the immediate wake of that international agreement signed in Geneva between Russia and Ukraine that was supposed to walk gingerly backwards from confrontation, American Vice President Joe Biden was in Kyiv on Tuesday where he issued a warning that “it’s time to stop talking and start acting” to reduce the continuing tensions in Ukraine. Biden urged Putin’s government to encourage – quickly – the pro-Russia separatists in eastern Ukraine to vacate the government buildings and checkpoints they had seized, accept a proffered amnesty from the Ukrainian government, and for the two nations to “address their grievances politically” rather than via any military combat.

Those seizures of government offices in several eastern cities by pro-Russian protestors – had taken place with the reported involvement of Russian special troops dressed in mufti, as part of efforts to stir things up a bit further. As a result, in Biden’s comments he had added, “We will not allow this to become an open-ended process.” Biden’s visit was part of Obama administration efforts to show support for Ukraine – especially since that Geneva accord already seemed to be in dire straits.

Speaking to the media after his meeting with Biden, Ukrainian Prime Minister Arseniy Yatsenyuk’s language was still blunter, insisting, “No country should be able to behave like an armed bandit. Russia should stick to its international commitments and obligations. They should not behave as gangsters in the modern century.” That’s unlikely to make Vladimir Putin’s advisors happier than they were before Biden arrived in Ukraine.

The US, meanwhile, has been hinting that it will add additional economic sanctions on Russian officials and entities. These would go beyond the relatively modest restrictions already in place – if Russia does not act upon the Geneva agreement.

Biden also announced his government planned an additional $50 million worth of help for Ukraine’s beleaguered government so that it can carry out the political and economic reforms that would help it survive its current travails. According to the US government, this money includes $11 million to help the country accomplish its presidential election next month, supporting voter education, electoral administration and oversight.

In addition, this assistance will support visits by experts who will help the country reduce its current dependence on Russian natural gas and oil. Still other advisors would assist efforts to reduce corruption. The White House also announced that there was $8 million in the pipeline for nonlethal military assistance for Ukraine’s under-equipped, under-trained military. This would include bomb-disposal equipment, communications gear and vehicles. Overall, this is a rather minor tranche of aid, enough to signal support but not enough, perhaps, to trigger serious Russian responses.

Russia has insisted it has a slightly different view on the whole matter, of course. It has maintained it has had no involvement in the new troubles in the eastern Ukraine (despite reporting by numerous international journalists that argue differently), and it has rejected criticism it has not lived up to the new agreement. Moreover, its officials have criticised what they have seen as ultimata emanating from the West.

Russian Foreign Minister Sergey Lavrov argued, for example, “Before putting forth ultimatums to us, demanding fulfilment of something within two-three days or otherwise be threatened with sanctions, we would urgently call on our American partners to fully recognise responsibility for those whom they brought to power and whom they are trying to shield, closing their eyes to the outrages created by this regime and by the fighters on whom this regime leans.”

In response to the events in Ukraine, some American politicians have been significantly more vociferous about the need for support for Ukraine than Vice President Biden has been. Republican Senator John McCain (the ranking Republican on the powerful Senate Armed Services Committee) had also been a recent visitor to the region, and, speaking on the cable news network, MSNBC, McCain said American allies in Eastern Europe have become “extremely nervous” about Vladimir Putin’s intentions and he called on Barack Obama to make a commitment to give Ukraine “some weapons to defend themselves.”

Seemingly lining up with those who would look to the crisis of the late 1930s as the applicable lens to observe Russian intentions, McCain argued the US should be more supportive of nations under siege, saying, “the only thing that Putin understands is a strong, viable alliance.” It should be reiterated that, so far at least, there is little popular support in the US for any form of military commitment in the region, however.

But, as far as Russia itself is concerned, there are growing concerns that the economic drain from its current adventure in Ukraine and Crimea are growing – and that they may well have a higher cost than anyone there had expected. Speaking to the Russian parliament in his annual government report speech, Russian Prime Minister Dimitri Medvedev gave recognition of the possible costs of this foreign adventure. Medvedev had argued that while Russia remains interested in trade with Europe, if western nations strengthened sanctions, his nation would have little choice but to fall back on its own resources, but that “we shall win in the end”.

Medvedev’s invocation of this policy of autarchy as a viable economic strategy is an indication of the Russian government’s realisation that it needs to reduce its dependency on foreign funds, products, markets and technology. This is coming into official language even as investment capital continues to leave the country, the threat of increasingly stringent economic and trade restrictions looms, the stock market is taking a hit, and the currency continues to be under serious pressure in markets at the same time. The Financial Times noted, for example, “analysts warn that while fears of heightened risks are indeed reducing the role of foreign lenders and investors in the short term, Moscow will struggle to prop up an already stagnant economy by reducing international integration.”

And Chris Weafer of MacroAdvisory, a Moscow-based consultancy, added, “It is sensible for Russia to try and strengthen the domestic economy, but it would be a disaster if that resulted in isolationism. We only just saw Russia beginning to move in the right direction and starting to globalise its economy, and now, bang, comes this crisis, which could ruin it all.” In fact, the Russian economy only grew 1.3% in 2013 and its GDP actually contracted in the first quarter. Estimates now are that Russia’s economy will slide into a recession in the current quarter, the country’s finance ministry announced on Monday.

The Financial Times added, “Analysts warn that such self-reliance cannot last very long if foreign banks start fully pulling out of the country. Russia had $624bn in foreign debt as of the beginning of this year. More than $550bn of this was owed by corporates and banks – 20 per cent more than two years ago. ‘They could not refinance that domestically,’ says Mr Weafer.”

Moreover, such autarchy is even more difficult in other areas, other experts say. The Russian government would now be forced to come up with a national credit payments system, since, as the Financial Times observed, “Visa and MasterCard stopped processing payments for customers of a sanctioned Russian bank and briefly suspended them for two others following US sanctions last month.” If the crisis worsens, western sanctions will become tighter and broader, and Russia’s economic and financial problems will only become more – rather than less – burdensome. Clearly not the outcomes the Putin government had been hoping for from its adventure in Crimea.

Meanwhile, in Russia’s newest province of Crimea, estimates are that the costs of administering the province, providing the many now-promised subsidies, and supporting the army of civil servants now being sent to manage this complex transition will be substantially larger than originally anticipated. In Crimea itself, the costs on individuals are mounting as well. Most banks are closed, making it increasingly difficult to access personal funds, and those that are open are finding it almost impossible to carry out international transactions. But perhaps the most telling demonstration of the chaotic transfer of sovereignty is that McDonalds has shuttered all of its outlets in Crimea – citing the inability to service payments or obtain the necessary supplies to answer the inevitable cravings of all those Big Mac attacks on the Peninsula.

And if a further reminder of the extent and impact of the costs of this Crimean annexation were needed, consider the case of the “Gold of Crimea” exhibition now on view in the Netherlands as part of an international cultural exchange. The agreement was signed between the Ukrainian and Dutch Ministries of Culture, but when the loan period is finally over, insurance companies, governments, museums and – inevitably – the lawyers are all going to have a serious bun fight over where the priceless artefacts are returned.

If the Dutch try to return the works to Crimea, experts warn there may be no way to prevent them from being “borrowed” permanently for safe keeping by museums in Moscow or St Petersburg, thereby keeping them out of the disputed area. But, if the Dutch hold back from repatriating the treasures on the grounds that the agreement was with a government that contests their return to Crimea, following the annexation of the peninsula by Russia, that will generate still other problems. Someone, or some body, is almost inevitably going to say the works must stay on loan – and in limbo – until everything settles down. Whenever that is.

As a result, the Crimean gold (or perhaps those now-absent Big Macs) may be a microcosm of a much larger network of economic, political and societal problems to burden the Russians (and Ukrainians) for years to come, now that a Pandora’s box of problems has been opened by Russia’s hurried annexation of Crimea. DM

Photo:Russian President Vladimir Putin during his meeting with Chief executive officer of Royal Dutch Shell Ben van Beurden (not pictured) at the Novo-Ogaryovo state residence outside Moscow, Russia, 18 April 2014. According to news reports, Putin assured his support for Shell’s plans to expand its business in Russia. EPA/MAXIM SHIPENKOV